Dick Cheney, once again doing what he does best, which is practicing creative-fiction public speaking. In fact, he’s practiced it so long, he’s practically perfect at it now:
In an interview today with The Associated Press, Vice President Dick Cheney said that no one saw the financial crisis coming and that President Bush had nothing to apologize for because he has taken “bold, aggressive action.”
Speaking in the West Wing, Cheney defended the administration’s handling of the economy, which has been in recession for more than a year. Regarding the collapse, he said “nobody anywhere was smart enough to figure it out.”
Let’s see, here are two well-known economists, who are also well known to have figured it out years ago, and who have warned repeatedly about what they had figured out.
If housing prices fall back in line with the overall rate price level, as they have always done in the past, it will eliminate more than $2 trillion in paper wealth and considerably worsen the recession. The collapse of the housing bubble will also jeopardize the survival of Fannie Mae and Freddie Mac and numerous other financial institutions.
When the housing bubble bursts, we will see the loss of $5 trillion in housing bubble wealth…. The economic fallout will also be enormous.
… the unaffordability of housing in the early 1980′s led to an epic collapse in the housing industry. Housing starts fell from more than 2 million in 1978 to only 1.06 million in 1982. And the housing implosion was one of the main factors in the worst economic slump since the Great Depression, which brought the unemployment rate to a peak of 10.8 percent at the end of 1982.
It’s also worth noting that the reason housing was so expensive in 1981 and 1982 was that mortgage interest rates were extremely high. That made recovery easy, because all it took to make housing affordable again was for interest rates to return to normal levels.
This time, with interest rates already low by historical standards, restoring affordability will require a big fall in housing prices.
So here’s the bottom line: … Part of the rise in housing values since 2000 was justified given the fall in interest rates, but at this point the overall market value of housing has lost touch with economic reality. And there’s a nasty correction ahead.